November 15, 2023

2023: The Year of Modern Families

By Stephenie Yeh Chan, Senior Manager, Tax & Business Services

2023: The Year of Modern Families Year-End Tax Guide

As the definition of “family” continues to expand, the law plays catch-up. More couples are deciding to forego marriage, while married couples are headed toward divorce. Many are pursuing alternative ways to grow their families, while others are treating their pets as children. LGBTQIA+ individuals and blended families are also facing unique challenges and may benefit from additional planning.

What’s New?

I. Respect for Marriage Act

Signed into law at the end of 2022, the Respect for Marriage Act repeals the Defense of Marriage Act (DOMA) and requires all US and State government agencies to accept same-sex and interracial marriages. This provides protections for couples and gives them Social Security and tax benefits. It received significant bipartisan support and shifted the tone on marriage equality in this country.

II. Equality Act

On the other hand, the Equality Act, which would provide federal protection for LGBTQIA+ individuals, has struggled to gain bipartisan support. It passed the House in 2021 but died in the Senate. Recently, Democrats in both chambers have reintroduced the Equality Act, seeking to amend the Civil Rights Act of 1964, which prohibits discrimination based on race, color, religion, economic status, sex, and national origin. If passed, it would include gender identity and sexual orientation, and it would be the first Federal law that clearly prohibits anti-LGBTQIA+ discrimination.

III. 303 Creative LLC v. Elenis

The Supreme Court dealt a blow to LGBTQIA+ protections with its 6-3 decision in June. A website designer seeking to work in the wedding industry did not want to have same-sex couples as customers because she believed it would violate her Christian values. She intended to make an announcement to that effect but found that doing so would violate a Colorado law that prohibits public businesses from discriminating based on gender identity or sexual orientation. The Court struck down the Colorado law as a violation of the First Amendment.

What’s Next?

The best strategy for the modern family is to have a written plan in place that addresses your family’s needs. Here are some recommendations:

I. Alternatives to Marriage

Choosing to have a life partner rather than a spouse is becoming commonplace. While not legally bound through marriage, unmarried couples are still entangling their lives by purchasing real property together and having children. Unmarried couples should consider Cohabitation Agreements. Likewise, couples anticipating getting married should think about Prenuptial Agreements, while those already married may benefit from Postnuptial Agreements. Having a plan in place and agreeing on assets and children while everyone is friendly can protect both parties’ interests in the event of a split.

But having an estate plan is more than just checking the box that you’ve signed your Will.

II. From “I do” to “I don’t”

When negotiating a divorce or settlement agreement, couples should consider the following:

  1. Child Tax Credits. Lawmakers are debating how to reform the child tax credit. Currently, the credit is $2,000 per child for a taxpayer with less than $200,000 of income (or $400,000 if married filing jointly). While this may provide an avenue to give the credit to the spouse with a lower income in exchange for a break elsewhere, under current law, the credit will automatically decrease in 2026 to only $1,000 per child, which phases out for taxpayers with $75,000 or more of income ($110,000 if married filing jointly).
  2. Filing the Final Tax Return. How will you file your final income tax return as a married couple after the divorce is finalized (i.e., married filing joint or married filing separate)? Which accountant will prepare the return? Who will pay for the preparation of the return? All of these questions should be considered during the settlement.
  3. Liability for Joint Returns. If you file a joint tax return, you are jointly and severally liable for all representations on the return.
  4. Dependency Exemptions. Who will claim your children as dependents?

III. Why You Need a Plan

Everyone should have an estate plan and update that plan every five years or more often with any life changes. But having an estate plan is more than just checking the box that you’ve signed your Will. Are your beneficiary designations up to date? If you have a life partner, have you provided for them? What about your partner’s children who you did not adopt?

  1. Gestational Surrogacy. If you are considering pursuing gestational surrogacy, you may wish to look into your state’s laws on this matter. Some states, like New York, have adopted protections for surrogates to make healthcare decisions as needed and provide compensation to surrogates.
  2. Pet Trusts. If you are especially fond of your pet, you may want to consider including them in your estate plan through a pet trust, which allows you to provide funds for your pet’s care and name a caretaker.
  3. Health Care Directives. Health Care Directives are also essential, especially for modern families. Healthcare providers may not speak with those who are not the spouse without proper documentation. For same-sex couples in some states, you may be required to show proof of marriage.

The Modern Family faces many challenges the law does not anticipate or provide for. The key for the Modern Family is planning, planning, planning.

2023 Marcum Year-End Tax Guide